COMPLY: FINRA chief sees closer ties with SEC

(Reuters) - Ties between government and self-regulatory organizations are likely to get tighter as they rely more on each other, said Richard Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority (FINRA), in a recent interview.

"Collaboration between SROs (self-regulatory organizations) and government agencies is going to be even more important," especially as the responsibilities of both continue to grow, Ketchum told Reuters.

The U.S. Securities and Exchange Commission and FINRA have long been involved in tag teaming. FINRA, which monitors U.S. securities markets and examines brokerages, routinely advises the SEC of its most egregious findings, including potential criminal conduct and fraud. The two have jointly advised the securities industry, most recently about how brokerages can more effectively inspect their branch offices.

But other efforts have not run as smoothly.

Last year, SEC Commissioner Luis Aguilar publicly criticized FINRA for not giving the agency sufficient access to data that FINRA collects about brokerages and their employees.

FINRA has since improved the SEC's access to that data through weekly customized downloads and other enhancements, FINRA spokeswoman Nancy Condon said in an email on Thursday.

An SEC spokesman declined to comment.

Ketchum said there was a simple reason why the SEC and FINRA would need to continue to play nice: There will be more than enough work to go around.

The Dodd-Frank financial reform law has ensured there's no shortage of tasks for the SEC, including new oversight of hedge fund advisers and swaps dealers. Indeed, the agency is behind in drafting 98 rules required by Dodd-Frank, according to a recent report by law firm Davis Polk & Wardell LLP.

A study by SEC staff last year about adviser oversight made it clear the agency needs help. It analyzed three ways to better police advisers, including user fees for those advisers it examines, and establishing a self regulatory group for the job.

FINRA, which oversees the brokerage industry, has been vocal about wanting to ease the SEC's burden.

"We may need to step up and take more responsibility for the entities we do regulate," Ketchum said.

Many of those entities are broker-dealers that are also affiliated with SEC-registered investment advisers. FINRA has long argued that it doesn't have a panoramic view of those brokerages, because it lacks legal authority to examine their investment adviser operations.

Broadening FINRA's authority over those investment advisers would be "logical," Ketchum said.

His organization has been pushing to oversee thousands of other investment advisers whom the SEC examines about every 11 years. FINRA visits the almost 4,600 broker-dealers under its jurisdiction an average of once every two years.

Just don't ask him about the cost.

"There aren't any figures out there now," Ketchum said. FINRA needs a job description first, before it can furnish a pricetag.

Costs of overseeing investment advisers will be "meaningfully different," depending on which advisers the SEC and Congress may target for FINRA oversight, and to what extent. A program limited to examinations, for example, would cost less than one that includes rule-making responsibilities, he said.

Industry groups that represent investment advisers have criticized FINRA for not being forthcoming about that figure -- an expense which may be funded through fees it charges to those it regulates. And many investment advisers are opposed to oversight by a self-regulating organization.

A recent Boston Consulting Group study commissioned by adviser trade groups concluded that creating an SRO to examine investment advisers could run as high as $565 million.

FINRA's costs will be a "meaningful small fraction" of that estimate, Ketchum said.

"As soon as we see something that's a target that isn't continually moving...we will generate cost estimates," he said.

Ketchum, and advisers chasing that number, shouldn't expect clarity any time soon.

Draft legislation by U.S. House of Representatives Financial Services Committee Chairman Spencer Bachus would authorize a self-regulatory organization to oversee certain investment advisers, but hasn't moved beyond the discussion phase. A follow-up draft, anticipated by Washington insiders, would be subject to the whims of legislative bureaucracy.

That at least gives FINRA and the SEC more time to perfect their collaboration.

(Editing by Bernadette Baum, Dave Zimmerman)